Dear Congress: End Illegal TV Station Ownership

By Free Press

In testimony before Congress on Wednesday, Free Press Policy Director Matt Wood spoke out against a House bill that would strip the Federal Communications Commission of its ability to crack down against serious and ongoing violations of its local television-station multiple ownership rule.

These violations take the form of illegal outsourcing agreements in dozens of U.S. broadcast markets, where one conglomerate creates shell companies to dodge station-ownership rules. For viewers this often results in a single team producing news and information for multiple stations.

"These violations harm competing businesses and diminish the number of competing viewpoints on our nation's airwaves," Wood wrote in his submitted testimony.

"They cause job losses, as broadcasters outsource the news and consolidate newsrooms. And they diminish the number of competing local newscasts, because stations subject to outsourcing agreements and de facto control by another broadcaster simply do not gather or air their own news."

Wood testified before the House Energy and Commerce Subcommittee on Communications and Technology in a hearing on the "Reauthorization of the Satellite Television Extension and Localism Act." Several draft sections of the Act are designed to limit the FCC's ability to promote competition and diversity in local broadcast markets, both primary mandates of the agency.

The report documents the increased use of outsourcing agreements by Gannett Company, Nexstar Broadcast Group, Raycom Media, Sinclair Broadcast Group, Tribune Company and other broadcasters. Through these deals, station owners create so-called "sidecar" or shell companies to evade the FCC's rules and establish near-monopolies over local TV news production in markets across the country.

These arrangements do not simply concern two stations sharing some common functions. Rather, they involve one large broadcaster owning all of the physical assets of another in-market station. The broadcaster runs all of that station's day-to-day operations, produces 100 percent of the local news programming and keeps most of the station's profits.

These agreements are used to evade the FCC's ownership rules in nearly half of all U.S. media markets. They are used to form otherwise illegal duopolies between two top-four ranked stations in 78 markets. This rule is particularly important for ensuring communities have access to the greatest number of independent sources of news and information, which are often produced by the major network-affiliated stations.

"We are in the midst of an explosion in the use of outsourcing agreements, which is fueling the current historic wave of consolidation," says Free Press Research Director S. Derek Turner, who authored the report. "Before the FCC turned a blind eye to these evasions, small broadcasters and new entrants actually had a chance to participate in this industry, particularly in the medium- and smaller-sized markets. But now that companies like Sinclair and Nexstar are using these evasion tactics to gobble up stations, the opportunities for other competitors are virtually non-existent."

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Wood's testimony:

"Chairman Walden, Ranking Member Eshoo and members of the Subcommittee: Thank you for inviting me to testify today.

"My name is Matt Wood. I'm policy director for Free Press, a nonpartisan organization with more than 700,000 members across the country.

"Free Press works for policies that promote competing sources of news and journalism, because they're so important for informing our nation's democracy and powering our economy.

"Unfortunately, the Discussion Draft could contribute to the ongoing loss of such competition. My testimony focuses on Section 4 of that draft, which would keep the FCC from addressing undue media concentration and removing entry barriers for new broadcast businesses.

I" will also talk briefly about Section 6, which would keep the agency from following Congress' direction to increase the choices that people have for set-top boxes and other video devices.

"Our media should reflect the full range of experiences and ideas this country has to offer.

"It's essential to see different viewpoints and hear different voices on the dial, even if they don't always agree - or rather, because they don't agree. Robust debate and in-depth coverage keep our republic strong and free.

"This applies at the national level and at the local level too, where broadcasting remains a vital source of information about our government and our culture.

"Television remains the dominant way that Americans get news. Seven in ten people in the U.S. watch local TV news - almost double the number who watch cable news or get news online. But what kind of news are they getting?

"The answer for too many Americans is that they get two or more local newscasts produced by the same company.

"Sometimes this outsourced news comes from separate news teams. More often, stations have the same reporters, air the same stories, or use the same scripts on two or more channels.

"In either case, it's the same owner calling the shots.

"Some broadcasters say this type of "sharing" keeps multiple newscasts on the air. They claim, oddly enough, that the only way to have competing news is for stations to stop competing.

"Let's be clear: When you hear about 'synergies' that make news more attractive to produce, there are just two ways to save money: cutting overhead and cutting jobs.

"So one person's 'efficiency' is another's unemployment. And that's a hardship that affects us all when the people losing their jobs are journalists we depend on to dig into the facts.

"Slashing newsroom jobs can happen slowly, as a broadcaster like Sinclair reduced its average number of employees by more than 20 percent, from 55 per station in 2001 to just 43 today.

"Or it can be tonight's top story. In late 2010, the anchor at KMSB in Tucson took to the air and reported the layoffs that hit him and 50 of his colleagues.

"What makes it worse is this runaway consolidation happened right in front of the FCC for years, clearly violating its ownership limits.

"Section 4 of the draft refers to the 'local television multiple ownership rule,' which permits direct or indirect control of more than one station per market only under certain circumstances.

"Yet in more than 100 markets - almost half of the TV markets in the whole country - broadcasters use outsourcing arrangements to violate the letter and the spirit of this FCC safeguard.

"They do this with Joint Sales Agreements (or 'JSAs'), Shared Services Agreements, and a litany of others. Combined, these management agreements transfer control - and the bulk of the affected station's revenues - away from the supposed licensee.

"These outsourcing deals often prop up shell companies that take away opportunities for competing businesses. As a rule, the FCC shouldn't stand for them.

"Last month, the Department of Justice told the FCC that such covert consolidation can harm competition.

"Last week, FCC Chairman Tom Wheeler called for a vote to treat JSAs above a certain threshold as what they are: signs of ownership by the broadcasters who really run these stations.

"That would align the FCC with the Securities & Exchange Commission, which doesn't fall for the fiction that these are independent owners. Investors get the truth, and operating stations must treat their so-called 'sidecar' companies as subsidiaries.

"Even that nickname - 'sidecar' company - shows how much they're driven by conglomerates like Gannett, Nexstar, Raycom, Sinclair, and Tribune.

"Section 4 could keep the FCC from moving ahead with its plans to clean up this practice and prevent unlawful transfers of control.

"Section 6 also could reduce choices for viewers. As Mr. Zinn explained, the integration ban promotes competition for set-top boxes, which incumbents now charge you up to 20 dollars a month to rent.

"Cable customers should be free to take that offer; but they should have options too. And they shouldn't believe cable claims that blocking innovation by others is itself a form of innovation.